"When I was young I thought that money was the most important thing in life;
now that I am old I know that it is." Oscar Wilde

RETIREMENT ACCOUNTS FOR INDIVIDUALS:

TRADITIONAL IRA's:  

Contributions to traditional IRA's are typically tax deductible. The amount you can deduct may be affected if you or your spouse work for a company that provides an employer sponsored retirement account.  Your modified AGI may also affect the amount you can contribute.  Except for very specific circumstances, you can not access this account until you are 59 ½.  At age 70 ½, you will be required to take out minimum distributions, which will then be taxable.  If you take money out before you are 59 ½, you will be subject to a 10% IRS penalty, as well as any taxes owed.  

The contribution limit  for 2011  is generally   $  5,000  (plus $ 1,000  catch up for those 50 years or older).  Some exclusions or phase-outs may apply due to income limits and/or if you are also covered by an employer sponsored plan. 

ROTH IRA's:

Contributions to this type of IRA are not deductible off your taxes.  However, as long as you follow the criteria of the ROTH, all earnings and growth associated with the ROTH are treated as tax-free earnings.  Unlike the traditional IRA, you are not required to take minimum distributions from the account at 70 ½.

You may be able to contribute for 2011  =  $  5,000 (plus $ 1,000  catch up for those 50 years or older).  

SEP IRA: 

This account allows you to make deductible contributions towards your own and your employees' retirement.  These plans are less complicated than many employer sponsored plans, and are often preferred by self employed people who may have just a few employees.   There are certain criteria an employer must follow if they are to have a SEP IRA, primarily that any eligible employee must have a SEP IRA set up for employer contributions, even if the employee doesn't elect to make contributions.  This

Contribution Limits:  Contributions you make for a year to a common-law* employee's SEP-IRA are limited to the lesser of $ 49,000 or 25% of the employee's compensation. Compensation generally does not include your contributions to the SEP.

For a self employed person,  the contribution amount is multi-faceted formula based on your net earnings from self employment  and other deductions you may be taken.  Therefore, while we recommend the SEP to self employed people, we also encourage them to consult  a tax professional to determine how much they can contribute for any given tax year.

These are abbreviated IRS definitions as they apply to IRA's ROTH's and SEP-IRA's.  This is in no way to be construed as complete information;  you must consult a tax professional to determine which retirement plan is best for you and what exceptions may apply to you.     

EMPLOYER SPONSORED RETIREMENT ACCOUNTS:

401k:  

Employer sponsored retirement plan.  For the year 2011, employee contributions can be as much as $ 16,500 or 100% of compensation.  Those 50 years or older can make catch up contribution of $ 5,500.  Your employer may or may not match contributions to this account.  These employer contributions may be deductible to the employer.  The total amount of contributions (employee and employer) can not exceed $ 49,000 for the year 2011.  Earnings in a 401k grow tax-deferred until distribution.  401k's can be rolled over to IRA Rollover accounts to protect the tax-deferred status of your account when you leave your employer. or they now may be converted directly to a ROTH IRA.

403b: 

Similar to the 401k, except that it is provided to employees of certain tax-exempt and non-profit organizations.  This includes teachers, nurses, and employees of most non-profit organizations.  The contribution limits are generally the  same as the 401k. Most 403b's can also be rolled over to IRA rollover accounts to protect the tax-deferred status of your account, or they now may be converted directly to a ROTH IRA.

SIMPLE IRA: 

You can set up a SIMPLE IRA plan if you meet both the following requirements.

You meet the employee limit.


You do not maintain another qualified plan unless the other


plan is for collective bargaining employees.

 Employee Contribution:    Employee - $11,500  in 2011.  If the employee is aged 50 and over,
an additional “catch-up” contribution is allowed.  The additional contribution amount
for  2011  - $2,500.

 
Employer contribution:    Either dollar-for-dollar matching contributions, up to 3% of employee's compensation, or fixed non -elective contributions of 2% of compensation. Compensation is generally limited to $ 245,000.
 
Maximum Deduction:  Employee:  Same as maximum contribution
                                      Employer: Same as maximum contribution

Distribution rules for Simple IRA's generally follow the same rules that apply to traditional IRA's.

These are abbreviated IRS definitions as they apply to 401k, 403b and SIMPLE IRA's.  This is in no way to be construed as complete information;  you must consult a tax professional to determine which retirement plan is best for you and your business.

EMPLOYEE SALARY SAVINGS PLANS:

These are after-tax savings accounts that can be set up through an employer's payroll department or service.  Employees can direct funds from their paychecks to go to either a mutual fund or mutual fund money market account.  They are usually done through a direct deposit method or using the “ACH” system.

Employees may also be able to direct funds from their paychecks to

Traditional IRA's,

ROTH IRA's,

Coverdell (Education) IRA's,

College Savings Plans (529 plans).

The benefit of such Employee Savings Plans are that they are automatic.  The employee doesn't need to remember to make contributions or put money away for a rainy day.